An excellent former student pinged me about my thoughts on Amazon’s breakup with NYC, i.e., their withdrawal from NYC as their HQ2. I try not to give reactionary “hot takes” on this blog, but it is perhaps a few days late even for a studied response. I thought that the press coverage dealt with politics, which is not something I can speak with any expertise. Here are my thoughts.
This move has not really changed our fundamental understanding. Earlier on the blog, I had written about the viewing and thinking of Amazon HQ2 decision as an innovation tournament, a view that has been proven accurate over time.
In any case, I had made a personal prediction that Amazon would establish their HQ2 in the Washington DC area. In fact, I had written that,
Many, many smarter people have bet on NYC — I am not yet convinced.
So Amazon withdrawing from NYC actually makes my bet more accurate 🙂 However, that comment’s neither here nor there.
Winner’s Curse.
NYC suffered from the winner’s curse. From the nature of closed innovation tournaments, we know that winners would end up pay more than they need to. In fact, I noted that,
… such tournaments are inefficient ways to generate new ideas, because a ton of effort is spent in developing opportunities and ideas, and most ideas are anyway abandoned.
Surprisingly, NYC had offered significantly higher financial incentives than Crystal City, VA in their bid to be an HQ. I think that the win was a classic case of buyer’s regret: “over-bidding and winning” something that you are not sure about. In contrast, Google, for instance, did not ask for similar tax breaks as they expanded their offices in New York City.
I don’t agree with those who have rejoiced about Amazon’s decision. Despite all criticism, Amazon’s presence would have been a net positive for some local economies in NYC (such as Long Island City).
On the other hand, some others presume the HQ2 deal an obvious no-brainer. That is also not clear to me. Cities have seen tremendous growth in recent years. Life has improved, but urban infrastructure has been crumbling. For cities operating on constraints, and dealing with break-neck growth, a dollar for something is a dollar away from something else.
Everywhere, cities with tech have faced quandaries. Persistent MTA delays and the lack of upkeep of transit infrastructure have been resounding factors in the run-up to recent NY state and local elections. San Francisco’s gross receipts tax proposal to tackle rampant homelessness (also known as Prop C) has been approved by voters, but not without a preceding all-out public tussle between the CEOs of two big tech firms. In Seattle, after passing the Head Tax unanimously, against Amazon’s protests, the same council that passed it made an about-face and repealed the tax.
It is hard to deny such strife must have weighed on the NYC council, culminating in their agitated reception to Amazon during hearings. Of course, disagreements embedded in the inscrutable politics of NY city vs. state decisions were also a factor.
NYC needs Amazon, but Amazon needs NYC more.
As the pop group REM wrote,
“Leaving New York never easy
(It’s pulling me apart)”
It is hard for Amazon to just quit NYC. Eventually, this “conscious uncoupling” (or whatever such separations are called nowadays) is not a complete severing of the relationship. Amazon continues to have a big presence in NYC, and in fact, is even growing its offices. This increasing presence in NYC (and other cities), is not a surprising fact for those of us who have been tracking Amazon’s pervasive geographical growth.
I had written that these offices are a road to many HQs…
I think that [opening multiple HQs] is a starting point of a long road to many regional HQs like many global firms. Amazon is increasingly global, now. Eventually, these sites and cities will be among the many regional HQs in future. I am thinking of Miami and Toronto, and may be even Austin.
NYC is where a lot of white-collar talent exists. Amazon has to be wherever the talent is.
Perhaps, $3B was perceived as giving up too much for a firm that would have come to NYC, but I think with an open-ended process, both NYC and Amazon may have arrived at a set of proposals that would have been acceptable to both sides and most stakeholders. This whole spectacle began with disagreements among the diverse stakeholder interests in NYC, aided by an opaque process that Amazon followed.
Cities Reborn: Some Decisions are Symbolic Time Shifts
A fascinating thing that has transpired in the last 10-15 years is the significant growth in the economy and population of cities. In contrast to the earlier times, cities compared to outer suburbs, have become desirable places to live. Malls are dying and the crime in cities has been in steady decline. Cities are going through a period of rebirth and rejuvenation.
To observe the stark contrast, watch the film The Taking of Pelham One Two Three (not the 2009 film, the 1974 version starring Walter Matthau) and observe the grim seventies of New York City, which bears little resemblance to current day NYC.
Consider the NFL. Until recently, NFL franchises routinely forced cities to build them new stadiums with public funds, under the threat of moving. (A tragic case in point, St. Louis, which wooed Rams from LA with all kinds of benefits, only to lose them back after decades anyway). In 2016, voters in San Diego overwhelmingly rejected funding most of the cost for a new $1.8 billion stadium for Chargers, who promptly packed up and left for Los Angeles to share a privately funded stadium being built by Rams. We will see more such actions.
Tech firms, even more than sports franchises, would like to be present in cities such as Miami, Austin & Salt Lake City because those cities have become increasingly desirable places to live. Most importantly, such cities are where much of white-collar talent love to reside.
Notes:
- Here is a set of letters that reveal a gamut of opinions about Amazon’s move. On CNN website, but worth your time.
- Innovation Tournaments: Creating and Selecting Exceptional Opportunities by Christian Terwiesch and Karl Ulrich. 2011. Harvard Business Press.
- Uneasy Peace: The Great Crime Decline, the Renewal of City Life, and the Next War on Violence, by Patrick Sharkey, W. W. Norton and Company.
- Film Trivia: Characters’ names in Reservoir Dogs (Mr. Black, Mr. Pink, etc.,) come from Taking of Pelham, One, Two, Three.
- A related OWL article you may enjoy: Celebrations, Cities, and Creativity.